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E-closings 101



With the current shelter-in-place orders issued by states across the United States, buyers and sellers are left wondering how this will impact the settlement of their homes. Fortunately the digitalization of the closing process was already underway in some states, making the transition to electronically conducted closings a possibility. E-closings are possible in DC, Maryland, and Virginia, but what does that mean for buyers and sellers?


E-closings refer not to one specific process but to a variety of ways that buyers and sellers can electronically execute their closing documents. Though the name suggests a virtual experience, e-closings frequently take place in person. E-closings can take place in one of four ways: in-person e-notarization (IPEN), remote ink-signed notarization (RIN), remote online notarization (RON), or a hybrid.


IPEN closings are in-person and involve electronically signing digital documents on a tablet or computer, which are then digitally notarized. The borrower and notary meet face-to-face, but all documents are executed electronically.


RIN closing documents are ink-signed while a notary witnesses it via webcam, and then mailed to the notary. The notary will complete the final ink notarization after receiving the documents. Though this is an option for buyers who would like to sign remotely, they must keep in mind that this type of closing typically requires the closing package be mailed to the signer in advance. Additionally, there may be legal challenges going forward as RIN closings have typically been temporarily authorized in response to Covid-19.


RON closings are fully electronic and remote, whereby all documents are signed electronically and the signers and notary meet via webcam instead of in-person. This process is very similar to a live-signing process, but the signatures are electronic. Getting legislation to make RON possible had been in the works before the Covid-19 outbreak, but the ensuing executive orders from state and local governments allowing RON and mandating local courts to accept electronic copies of documents has made RON closings a reality.


Virginia was the first state in the United States to pass RON legislation in 2012, however a special notary license was needed. By executive order Maryland currently allows RONs, but as of October 1, 2020 RON closings will be permitted in Maryland. In DC there is no legislation to date, however the Clerk of Court will accept RON closing documents for e-recording. Though RONs are becoming more widely accepted, there are still many conditions that must be met before it can be considered in a real estate transaction.


By expanding the definition of physical presence to include using an interactive audio/video connection, RON is the modernization of current notary laws. In order to use RON, title agents must use a notary that is physically present in the state from which they have the authority to act, and the notary must be located in a state where the RON laws have been approved via legislation. Additionally, closings conducted by RON must have the express consent of all parties involved (though despite consenting to the process, there is no requirement that everyone must execute documents electronically).


With RON closings, they must be conducted using specific, approved vendors such as DocVerify, Pavaso, NexSys, Notary Cam, and Notarize. While seemingly similar to platforms like Zoom, FaceTime, or Skype (that are unacceptable for RONs), the approved vendors are used because they are much more sophisticated and secure. The notary verifies the signer’s identity over webcam with their government-issued ID and a series of questions, and the signing process is captured by audio and video and recorded.


In order to have a RON closing, there needs to be advance preparation and planning. First, if there is a lender involved, the title agent must seek the approval of the lender as soon as possible. If approved, the lender will issue written approval and send documents to the title agent. The title agent will then tag loan documents, load them into the portal from the approved vendor, and schedule a virtual signing session with the signing party and agent. Typically the buyer and seller will have time to review these loan documents in advance of the signing session, and then sign them electronically.


The lender’s approval is paramount, as without it RONs are not possible. Luckily Fannie Mae and Freddie Mac allow RON closings, and they are gaining wider acceptance. Lenders do not need any software or platform to accept RON closing documents, but they may choose to deny a request at their discretion.


When real estate transactions are conducted 100% electronically, buyers and sellers can benefit from increased accuracy and quicker settlements. First, buyers submit their earnest money deposit electronically. Documents are delivered over a secure portal and are signed on a specific approved platform. The notary electronically notarizes the closing documents (which include tracking mechanisms) and they are electronically recorded for quicker disbursement. Finally, the executed closing documents are kept on a secure server.


While the prevalence of e-closings has come about out of necessity, there will likely be widespread adoption of legislation allowing for e-closings to take place across the United States. Some benefits of e-closings include earlier document delivery (giving buyers and sellers more time to review closing documents), increased security (limiting who has access to private information and indicating where digital notarial seals have been broken), convenience (signing from home and having time to review documents and ask questions), higher quality closings (preventing missing signatures or documents and improving accuracy and consistency), and eco-friendly options (reducing the need for paper and shipping and storing documents). 

Sources:

https://www.nerdwallet.com/blog/mortgages/eclosing-what-buyers-should-know/ https://www.firstam.com/assets/eclosing/img/band-types-infographic-graphic-1.jpg https://www.nationalnotary.org/notary-bulletin/blog/2018/06/remote-notarization-what-you-need-to-know

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